Rainbow Foundations RI review - (Avoid)

•    RFL is engaged in the realty development and marketing business. 
•    Its financial performance so far is very average and does not match the asking price.
•    There is no harm in ignoring this issue as post-RI its equity jumps nearly ninefold. 

ABOUT COMPANY:
Rainbow Foundations Ltd. (RFL) was originally incorporated as "Rainbow Holiday Resorts International Ltd. Now it has changed its name to the current one. Since its inception, RFL has been engaged in identifying, developing and promoting highly potential real estate for the purpose of development and selling of commercial and residential apartments in various places of Tamil Nadu.  It is also engaged in the development and marketing of plots and pieces of land in Chennai. 

So far it has completed 36 projects. Currently, it is developing residential projects in the prime locations of the city like Choolai and Purasawalkkam. It has up the sleeve five more projects which are yet to be finalized. It has a team of over 25 real estate consultants located in Chennai, Trichy, Madurai and Kodaikanal for the marketing of apartments. As of the date of this offer document, it had 18 employees on its payroll. 

ISSUE DETAILS/ CAPITAL HISTORY:
To part finance its funding needs for the redemption of non-convertible preference shares (Rs. 36.50 cr.), general corporate purpose (Rs. 11.67 cr.), RFL is coming out with a rights issue (RI) of 44104800 equity shares of Rs. 10 each at a fixed price of Rs. 11 per share to mobilize Rs. 48.52 cr. The company is offering RI in the ratio of 8 for 1 to the registered shareholders on the record date of March 11, 2022. The issue has already opened for subscription today i.e. March 25, 2022, and will close on April 18, 2022. Investors have to pay the full amount on the application. Post allotment, shares will be listed on BSE. RFL is spending Rs. 0.35 cr. for this RI.

The issue is solely lead managed by Turnaround Corporate Advisors Pvt. Ltd. and Cameo Corporate Services Pvt. Ltd. is the registrar. 

Post RI, RFL's current paid-up equity capital of Rs. 5.51 cr. will stand enhanced to Rs. 49.62 cr. Based on the RI pricing, the company is looking for a market cap of Rs. 54.58 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last two fiscals, RFL has reported turnover/net profits of Rs. 29.16 cr. / Rs. 1.70 cr. (FY20) and Rs. 37.68 cr. / Rs. 1.14 cr. (FY21). As per unaudited results, for the first nine months of FY22, it has earned a net profit of Rs. 0.28 cr. on a turnover of Rs. 35.16 cr. 

DIVIDEND POLICY:
The company has not paid any dividends since incorporation. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

SCRIP PERFORMANCE: BASED ON BSE WEBSITE DATA: SCRIP CODE: 531694
The scrip last closed on cum-right basis at Rs. 27.35 on March 09, 2022, and opened on the ex-rights basis at Rs. 13.45 on March 10, 2022. Since then, it has posted a high/low of Rs. 15.50 / Rs. 11.45. It last closed at Rs. 11.55 (on March 24, 2022) and based on this closing, its market cap on post-RI stands at Rs. 57.31 cr. It has posted the last 52 weeks high/low of Rs. 18.76 / Rs. 3.56. Its promoter's holding has been 33.93% since the last three quarters. The counter is well operated to lure investors for investment in this RI.